A theory about having babies

One of the most underappreciated facts about the last half of the twentieth century was the global decline in fertility rates. While the average woman in 1950 had around 5 children, today it is less than 2.5. The implication is that women’s fertility rates can fall rapidly; it took 95 years in the UK for the fertility rate to fall from 6 to 3 children per women (from 1815 to 1910) and yet only 20 years in Bangladesh (between 1982 and 2002). South Africa, incidentally, needed 34 years – from 1963 to 1997.

In many parts of the world the fertility rate is now way below replacement rates. This is creating demographic challenges, and not just in the wealthiest countries. Yes, rich countries like Germany (1.48) and South Korea (1.35) have exceptionally low fertility rates, but so, too, do Iran (1.59), Poland (1.29) and Brazil (1.69). Even Bangladesh, with a fertility rate above 6 only forty years ago now have a fertility rate below replacement (2.02).

If sustained, and there is no reason to suspect that it would not, these low fertility rates will radically reshape the population sizes of countries. The population of Germany, for instance, is projected to decrease by about 13 million from the current level of 80 million by 2060. This is likely to have major social, economic and political ramifications. A larger share of dependent pensioners would need to be funded by an increasingly smaller pool of tax payers, for example. Japan is already experiencing such pressure.

This has forced many governments to think hard about ways to boost their population size. Migration from places with high fertility rates – like many countries in Africa – is one option, but for many this remains politically challenging. An alternative is to encourage higher fertility rates. But to do this, of course, requires an understanding of the reasons for its initial decline.

There are, understandably, many factors that help to explain the tremendous decline in global fertility, but one of the key insights scholars have come to is that giving women the freedom to make decisions about their own family planning significantly reduces fertility. This is because women tend to want to have fewer children than men. In contexts where women have gained political, economic and social freedoms the fastest, fertility levels have declined rapidly.

This leaves policy-makers that hope to increase fertility rates with a conundrum. To increase fertility rates would mean to overturn the freedoms women have received. Some countries have tried this, removing the right to abortion and imposing a tax on childless individuals older than 25. But removing these freedoms are not only undesirable but also unconstitutional.

There are positive incentives too. One option, tried by several countries, is to subsidize having children. This could be done in a variety of ways. Usually it is to subsidize education or other kinds of expenses that families with young children would have. It could also be very direct. In 2003, one Italian mayor offered women 10000 euros for every baby they had. But there have been more creative alternatives too. In South Korea, on the third Wednesday of every month in 2010, officials at the Ministry of Health turned off all the lights in its offices by 7 p.m., hoping employees would go home to their families and use the time to have sex.

The problem, though, is that almost all of these positive incentives failed or, at best, had only limited positive results. The reason is, according to a new study in the American Economic Review, because few of these policies had a good theory of bargaining over babies. Without a good theory, the policy is unlikely to succeed.

To have a baby, it is generally necessary for both the man and woman to agree on having one. The authors show that this is supported by facts: With a dataset across 19 countries that reports people’s willingness to have kids, they show that the likelihood of pregnancy is much higher if both the man and the woman agree to have a child. (The probably of a pregnancy is almost zero if just the man wants a child and slightly higher if only the woman wants a child.)

They also find that is there is much disagreement about having babies. ‘Disagreement increases with the existing number of children. Among couples who have at least two children already, in all countries in our dataset we observe more couples who disagree than couples who both want another child. Moreover, women are generally more likely to be opposed to having another child than are men, particularly so in countries with a very low fertility rate.’

It is the last conclusion that is key to their consequent analysis. They construct a Nash bargaining model which reveals that it is not just the overall costs and benefits of children that matter for fertility, but also the distribution of costs and benefits within the household. ‘In a society where the burden of raising children is borne primarily by mothers, women will be more likely than men to disagree with having another child, and ceteris paribus the fertility rate will be lower compared to a society with a more equitable distribution of the costs and benefits of having children.’

The authors show that policies that lower the child care burden specifically for mothers (for example, by providing public child care that substitutes time costs that were previously borne by mothers) can be more than twice as effective than policies that provide general subsidies for childbearing. This, they argue, is primarily because mothers are much more likely to be opposed to having another child than are fathers. ‘The countries in our sample that have relatively high fertility rates close to the replacement level (France, Belgium, and Norway) already have such policies in place. Other countries that highly subsidize childbearing, but in a less targeted manner (such as Germany), have much lower fertility rates.’

The lesson is that having a theory of how humans make decisions is a necessary first step to designing policies that hope to change it. Making babies is as much about economics as it is about the birds and the bees.

*An edited version of this was first published in Finweek on 26 September. Photo by Kelly Sikkema on Unsplash.